• 2012 October 3

    Ust-Luga BPS-2 debut

    Oil terminal BPS-2 in the port of Ust-Luga has commenced handling oil products amid the protests of environmentalists and foreign observers. Another facility - Rosneftbunker terminal, which plans to handle light oil products, is also boosting the petroleum volumes. The growth in oil product traffic at Ust-Luga will affect neighboring ports. At the same time, the project payback period has increased.

    Getting independent

    The marine terminal for handling crude oil supplied to the Port of Ust-Luga through the second phase of Baltic Pipeline System (BPS -2) is operated by LLC Nevskaya Pipeline Company (co-owned by Rosneftbunker (50%), Transneft (26%), Gazprombank (24%). Rosneftbunker Terminal is operated by the company with same name (owned by Gunvor - its major shareholder is Gennady Timchenko). Both operators are managed by Chief Operating Officer Konstantin Hamlay terminals.

    The Ust-Luga facility was launched in a testing mode on March 23, 2012 at Berths Number 4-5, of liquid bulk cargo. The equipment and land owner is Nevskaya Pipeline Company. However, the start-up was frustrated by revealed construction flaws, which required additional scope of work, unforeseen in the investment plan. In addition to repair of the berths, which had cost more than RUB 200 million, it required seabed protection at the berths (another 160m rubles), which is still underway (expected to be completed by the end of 2012). Viktor Shabanov, CEO of Baltmorproekt (contracted to design and perform works to eliminate the flaws) said that sea floor protection is conducted ‘just in case’ to prevent possible erosion and keep it seabed and keep it on the 17.5m mark. It is also planned to install an automated system of monitoring berths.

    The project implementation period - 2013. The system will include an automated permanent monitoring of changes in the berths condition, buildings and other facilities using special sensors. The system designing is valued at 10m rubles, but its total cost is not yet determined.

    Konstantin Hamlay said the payback period of investment in the terminal was seven years, but because of the job added it will likely be extended.
    Experts believe one of the reasons of construction flaws is outdated regulations of technical standards effective two decades ago.

    "Geology of the place is so complicated that even at a distance of 10 m from the well, we can get different characteristics of the soil,” said Anton Vasilevsky, head of the department of a hydraulic engineering research institution for construction norms and rules.

    The expert is sure that the repair of defects was performed perfectly. "Now the berth is in good condition… and is reliable," he said adding he did not rule out another displacement. Then failures may occur again. Constant monitoring of the surface could help, the expert said.

    Konstantin Hamlay said that the job done by the contractor was not quite qualitative and was performed formally. However, it will be difficult to prove that in the court, because the contractor acted in accordance with the existing regulations.

    The Oil Terminal Phase 1 was designed for handling 30 million tons of crude oil a year in year, said CEO of Spetsmornefteport Ust-Luga (a subsidiary of Transneft, operates oil depot in Ust-Luga) Denis Sumachev. Russia’s State Expert Evaluation Department (Glavgosexpertiza) has approved increasing the capacity to 38 million tons a year, which would require building another two tanks. The final decision on additional reservoirs has not yet been made. The estimated period of their construction is 11 months.

    According to Mr. Hamlay, the facility is expected to transship 15 million tons of crude oil this year, of the volume about 20% will account for Kazakhstan oil. In 2013, Denis Sumachev predicts, Russia could export through Ust-Luga up to 30 million tons of the commodity.

    The terminal operation will allow the country to do without crude transits via Belarus and Poland.

    "Of course, the completion of the BPS-2 and the port of Ust-Luga will seriously hit some transit countries, and I am convinced that such activity in the foreign press regarding our terminal is no accident," Hamlay believes. According to him, the BPS-2 operator NPC has submitted to the German authorities a request to produce specific technical claims to the terminal, but they said there were no specific claims. At the same time, he said, those were the German authorities who demanded that Russia stop the operation of the liquid bulk terminal because of the high environmental risks.

    Light and dark products of Rosneftbunker

    As for the oil product terminal of Rosneftbunker, which operates Berths # 1-3 of the liquid bulk terminal, in 2012 the facility is planned to export over 12.5 million tons of fuel oil (main supplier - Kirishi Refinery). The terminal was launched in test mode on January 31, 2011. The facility’s projected annual capacity is 30 million tons. The total project cost is about $1 billion. Last year, Rosneftbunker terminal shipped 6.47 million tons of oil.

    The terminal is being built in four stages. The Phase 3 will be launched in test mode soon. The facility will be specializing in shipments of light oil products.

    The Phase 4 will demand at least $ 250 million, which includes the expansion of tank farm and a possibility of building additional piers.

    Rosneftbunker’s main rivals are is Port of Tallinn (Estonia) and Ventspils (Latvia). Earlier, in an interview with PortNews a Latvian Transportation Ministry official confirmed that Latvia has already experiencing strong competition from the Ust-Luga in the handling of freight and raw materials and is considering as an alternative transshipment of goods from China.

    According to representatives of Rosneftbunker the competitiveness of Russian terminals is reduced due to the need to inject significant funds in the construction of the associated infrastructure.

    "The cost of the infrastructure is very huge here, and this is not the same with our neighbors, so our investors have to build these costs in tariffs,” said Konstantin Hamlay.

    "So, we would be incorrect to compare rates in the ports of Russia and Europe. However, we’ve set the goal to make them comparable. Now the competitiveness of domestic ports is attributed in many ways to the rail infrastructure, but if for some reason, this advantage will disappear (for example, because due to the WTO accession), then we must be ready for this," the terminal CEO said.

    As to the oil refining depth at Russian refineries, it would not affect the volumes shipped through Rosneftbunker’s facility, because of a demand for fuel oil in the market.

    Another thing is that HFO may become heavier. Then it will require more sophisticated technology to handle with super heavy fuel oils. It is supposed to do it on pier 4 (its project is being considered), said Konstantin Hamlay. He added that the construction of the Ust-Luga oil refinery has been shelved for indefinite time due to the high cost of the project.

    However, we can say that the debut liquid bulk cargo complex in Ust-Luga, in spite of all the difficulties and obstacles, has turned out to be successful and an important factor, changing the configuration of oil logistics in the Baltic region.



    Vitaly Chernov.